week 4: Scholten & Ellemers, preventing traders' misconduct

Question 1

Why is studying culture important (8)

Answer 1

1. predictive of financial performance
2. predictive of employee well-being
3. predictive of organizational wellbeing
4. predictive of innovation
5. predictive of ethical behavior
6. predictie of learning
7. predictive of quality of service
8. more important than formal control (systems, procedures, structure and strategy)

Question 2

What is misconduct?

Answer 2

intentional unethical behavior

Question 3

what are 2 consequences of misconduct for financial organizations?

Answer 3

1. Costly (fines, trading losses)
2. Reputational damages negatively impacting business trust

Question 4

What are the 3 standard responses in preventing future misconduct?

Answer 4

1. Containment attempts
2. Disciplinary measures
3. Increase of controls

Question 5

What are containment attempts and why do they not work?

Answer 5

Containment strategy is sharing as little information as possible

ineffective because it impairs the possibility to learn from past misconduct

Question 6

What are disciplinary measures and why do they not work?

Answer 6

Disciplinary response to misconduct (blaming specific individuals and punish them)

ineffective because they only tackle a specific individual and not the environment

Additionally; prevent future voicing of concerns and undermines trust and rule compliance

Question 7

What are increase of controls measures (they don’t work)

Answer 7

Extended and more procedures and resources for risk management, audit and compliance

Question 8

Bad apple theory states that who is to blame for misconduct?

Answer 8

Solely an individual

Question 9

What are the pitfalls of the bad apple perspective? (3)

Answer 9

1. Does not explain variance in misconduct between teams
2. Individual-level behavior change is unlikely
3. Misaligned with scientific info about for example toxic leadership

Question 10

What are bad barrels?

Answer 10

Characteristic climate and behavioral patterns within trading teams can invite problems and facilitate misconduct

Question 11

What are the 3 foundations of the corrupt barrels model?

Answer 11

1. Task (ineffective error approach)
2. Interpersonal relationships (outcome inequality)
3. Team climate (dysfunctional moral climate)

Question 12

What are the 3 ineffective error approaches?

Answer 12

1. Denial (error’s don’t happen)
2. Empathy (errors may happen, but no structural changes made)
3. Blame & Punishment (no tolerance for errors so punish those who make errors)

Question 13

What are the 2 consequences of outcome inequality within interpersonal relationships?

Answer 13

1. Perceived injustice –> eliciting dysfunctional behaviors)
2. Envy –> justification of unethical behavior because it restores balance

Question 14

What are the 3 types of immoral team climates that encourage unethical behavior?

Answer 14

1. Moral neglect (lack of awareness of moral content of decisions or moral consequences of actions)
2. Moral inaction (awareness of negative moral impacts, but feel unable to adapt to their actions accordingly)
3. Moral justification (immoral actions are reframed in such a way that the individual’s understanding of moral content of action is distorted)

Question 15

What should financial organizations and supervisors do to prevent future misconduct? (2)

Answer 15

1. Identify (ineffective error approaches, outcome inequality or dysfunctional team climate)
2. Target –> social psychological root causes within error approach, outcome individuals or team climate

Question 16

What are the downsides of a bad barrels approach in preventing future misconduct? (2)

Answer 16

1. Financial professionals are not trained in targeting social psychological causes
2. Initiatives are less visible to public and cannot be induced quickly